TIDMPLP
RNS Number : 3684G
Polypipe Group PLC
17 March 2020
17 March 2020
Polypipe Group plc
Audited results for the year ended 31 December 2019
Further progress in challenging markets
Polypipe Group plc ("Polypipe", the "Company" or the "Group"), a
leading provider of sustainable water and climate management
solutions for the built environment, today announces its audited
results for the year ended 31 December 2019.
Financial Results
2019 2018 Change
Statutory measures
Revenue GBP447.6m GBP433.2m +3.3%
Operating profit GBP67.6m GBP65.8m +2.7%
Profit before tax GBP60.1m GBP58.2m +3.3%
Earnings per share (basic) 24.9p 24.7p +0.8%
Dividend per share 12.1p 11.6p +4 .3%
Alternative performance measures
Underlying operating profit(1) GBP78.1m GBP74.0m +5.5%
Underlying cash generated from
operations(2) GBP72.8m GBP71.2m +2.2%
Underlying operating margin(1) 17.4% 17.1% +30bps
Underlying profit before tax(1) GBP70.8m GBP67.1m +5.5%
Underlying earnings per share
(basic)(1) 29.6p 28.4p +4.2%
Leverage(6) (times pro forma
EBITDA(3) ) 1.7 1.7 -
Financial Highlights
-- Revenue growth of 3.3% despite challenging trading conditions and market uncertainty
-- Underlying operating margin increase of 30 basis points to
17.4% - reflecting investments made through the year and of margin
accretive acquisitions
-- Operating profit 2.7% higher with underlying profit before tax 5.5% higher
-- Underlying basic earnings per share of 29.6p, an increase of 4.2%
-- Good operational cash generation and strong balance sheet
-- Continued investment in business, capital expenditure of GBP22.3m
-- Group pro forma leverage of 1.7x (2018: 1.7x), including impact of IFRS 16
-- Proposed final dividend of 8.1p, bringing the total for the
year to 12.1p, 4.3% ahead of last year
-- IFRS16 has had the effect of increasing EBIT by GBP0.3m and net debt by GBP14.8m
Operational Highlights
-- UK revenue growth of 3.6%
-- Residential Systems revenue 6.1% higher than prior year
-- Second half acquisition of Alderburgh, performing in line
with our expectations and integration progressing well
-- Prior year acquisitions of Manthorpe and Permavoid fully
integrated, Manthorpe performing ahead of expectations
-- Organisational change successfully implemented across Group to support future growth
-- Polypipe Offsite Solutions division created to address
specific needs of emerging modular build market
Sustainability Highlights
-- Improving our sustainability has been a focus of the Group
for some time and will continue to be as we look ahead to 2020. A
comprehensive set of Group sustainability targets are being
developed and will be reported on later in the year
-- We launched our 'Inspiring Green Urbanisation' design guide
at the Future Build exhibition in March 2019 focused on helping
provide more sustainable environmental solutions to the
construction industry in water and climate management
-- During the year we further increased our use of recycled
plastic, which now represents 42.0% of the Group's overall plastic
usage (2018: 40.2%)
-- Carbon emissions (tCO2e) reduced by 10% in the year
-- Sustainable credentials recognised by the London Stock
Exchange with one of 74 "Green Economy Issuer" certificates for our
work in this area
Outlook
-- The Coronavirus pandemic is under close review by management.
We are taking all appropriate actions to ensure the health, safety
and wellbeing of our employees and to minimise disruption to our
operations, whilst watching our end markets closely. To date, we
have seen no direct impact on Group performance. The Group has a
strong balance sheet and substantial headroom on its borrowing
facility.
-- We are positioned well over the medium term within our
markets, delivering innovative new products, benefiting from legacy
material substitution, legislative tailwinds and a "one stop shop"
service for our customers across several different sectors of the
construction industry.
Martin Payne, Chief Executive Officer, said:
-- "Our strategy continued to deliver over the year, with
revenue and profit growth despite ongoing market uncertainty and
challenging trading conditions, particularly in the second half of
the year. Our balance of end markets, with their long-term growth
drivers, together with good operational performance and
contributions from our recent acquisitions positions us well. Our
balance sheet and cash generation remain strong. Aside from the yet
unknown effects of Coronavirus on the wider economy, we would
expect the current year to be a year of progress for the
Group."
(1) Underlying profit and earnings measures are from continuing
operations only and exclude certain non-underlying items and where
relevant, the tax effect of these items. The Directors consider
that these measures provide a better and more consistent indication
of the Group's underlying financial performance and more meaningful
comparison with prior and future periods to assess trends in our
financial performance.
(2) Underlying cash generated from operations is defined as cash
generated from operations after movement in net working capital and
capital expenditure net of proceeds from disposals of property,
plant and equipment.
(3) Pro forma EBITDA is defined as underlying operating profit
before depreciation for the twelve months preceding the balance
sheet date, excluding operating profit before depreciation from
discontinued operations, adjusted where relevant to include a full
year of EBITDA from acquisitions made during those twelve
months.
(4) Net debt is defined as loans and borrowings net of
unamortised issue costs less cash, including the effects of IFRS
16.
(5) The results for the year ended 31 December 2019 have been
prepared in accordance with IFRS 16. As we have adopted the
modified retrospective approach on transition, we have not restated
prior year comparatives.
(6) Leverage is defined as net debt divided by pro forma
EBITDA.
Enquiries:
Polypipe
Martin Payne, Chief Executive
Officer
Paul James, Chief Financial
Officer +44 (0) 1709 770 000
Brunswick
Nina Coad
Dan Roberts
Sophia Lazarus +44 (0) 20 7404 5959
A copy of this report will be available on our website
www.polypipe.com today from 0700hrs (GMT).
A live presentation will be given by Chief Executive Officer
Martin Payne and Chief Financial Officer Paul James at 0900hrs
(GMT) on Tuesday 17 March 2020.
To access the presentation, participants will be required to
carry out a combination of the below two actions:
1. Dialling in to the below conference call number from their
phones to listen to the presentation AND
2. Connecting to the webcast link to see the slides.
Dial-in phone number to hear the presentation:
UK Freephone Dial-In Number 0800 3767922
Standard International Dial-In number +44 (0) 2071 928000
Conference PIN 7077239
Web access to see the slide presentation:
Please click on the following weblink to access the slides:
here
Participants are required to dial in to the call and access the
weblink at 0845hrs (GMT), fifteen minutes before the start of the
presentation.
Notes to Editors:
Polypipe Group plc ("Polypipe", the "Company" or the "Group"), a
leading provider of sustainable water and climate management
solutions for the built environment is the largest manufacturer in
the UK, and among the ten largest manufacturers in Europe, of
plastic piping systems for the residential, commercial, civils and
infrastructure sectors by revenue. It is also a leading designer
and manufacturer of energy efficient ventilation systems in the
UK.
The Group operates from 19 facilities in total, and with over
20,000 product lines, manufactures the UK's widest range of plastic
piping systems for heating, plumbing, drainage and ventilation. The
Group primarily targets the UK and European building and
construction markets with a presence in Italy, the Netherlands,
Ireland and the Middle East and sales to specific niches in the
rest of the world.
Group Results
Group revenue for the year ended 31 December 2019 was 3.3%
higher than the prior year at GBP447.6m (2018: GBP433.2m).
Underlying operating profit was 5.5% higher than the prior year
at GBP78.1m (2018: GBP74.0m). Underlying operating margin in 2019
was 30 basis points higher at 17.4% (2018: 17.1%). Investments made
in 2019 in new production equipment and layout improvements to
alleviate capacity constraints resulted in more efficient working
and improved margins, combining with the full year effect of margin
accretive acquisitions.
Underlying finance costs were higher than prior year at GBP7 .3
m (2018: GBP6.9m) due to the impact of IFRS 16 and higher borrowing
levels following the acquisitions in 2019 and 2018, partly
mitigated by lower interest rates from the refinanced revolving
credit facility. Interest cover was 11.3x for the year (2018:
11.3x).
Net debt, pre IFRS 16, decreased GBP14.2m to GBP150.0m (2018:
GBP164.2m). Including the impact of IFRS 16, net debt was
GBP164.8m. Cash conversion for the year was 93% (2018: 96%),
leaving net debt to pro forma EBITDA at 1.6x (2018: 1.7x),
increasing to 1.7x following the impact of IFRS 16.
Underlying profit before tax was 5.5% higher than the prior year
at GBP70.8m (2018: GBP67.1m).
Non-underlying operating costs of GBP 10.7 m (2018: GBP8.9m)
primarily relate to non-cash amortisation charges of GBP7.5m (2018:
GBP5.9m) in respect of intangible assets arising from acquisitions
since 2015, and GBP3.0m of costs associated with the acquisition of
Alderburgh and other M&A costs.
The total tax charge for the year of GBP10 .5 m (2018: GBP9.4m)
represents an effective tax rate of 17.5% (2018: 16.2%). The
underlying effective tax rate of 16.8% (2018: 15.6%) was lower than
the standard UK rate of tax of 19.0% (2018: 19.0%) primarily due to
the benefit of patent box relief. The lower underlying effective
tax rate in 2018 was primarily driven by the release of GBP0.6m
legacy tax provisions and the recognition of a deferred tax asset
in respect of previously unrecognised tax losses (GBP0.6m benefit).
Adjusting for these effects, the underlying effective tax rate in
2019 would have been lower year on year.
Underlying profit from continuing operations was 4.1% higher
than the prior year at GBP58.9m (2018: GBP56.6m), with underlying
basic earnings per share from continuing operations 4.2% higher at
29.6 pence (2018: 28.4 pence).
Chief Executive Officer's Review
I am pleased to report that Polypipe has delivered another
record performance in 2019, with revenue from continuing operations
3.3% higher than prior year at GBP447.6m (2018: GBP433.2m),
underlying operating profit 5.5% higher than prior year at GBP78.1m
(2018: GBP74.0m) and underlying basic earnings per share 4.2%
higher than prior year at 29.6 pence per share (2018: 28.4
pence).
The year was characterised by political and economic
uncertainty. While 2019 saw continued historically low interest
rates, low inflation and near full employment leading to real wage
growth, the political situation that unfolded during the year
significantly impacted the construction market. Housebuilders
started 8% fewer plots compared to the prior year and investors
delayed commercial projects. Although the general election result
brought some certainty, it was too late in the year to see any
meaningful effect within the markets in which we operate.
Merchants adjusted stock levels throughout the year, firstly for
what they thought would be an EU withdrawal in March 2019 and then
October 2019, neither of which happened, and secondly for a slower
second half end market. The Group has delivered another record
performance in the year, which is testament to the strength and
dedication of our management and employees, and I would like to
thank them all for their contributions.
The Group made excellent progress on strategic initiatives
during the year, exploiting the drivers of legacy material
substitution and legislative tailwinds in water and climate
management, and developing its 'one stop shop' offering for
customers in the UK. We have also continued to invest in new
products. During the year, we had a number of new, innovative and
exciting product launches in line with our strategy, details of
which can be found further on in my report. We also expanded the
Group in the year with the acquisition of the Alderburgh Group of
Companies in October 2019, underlining our ability and appetite to
acquire businesses in line with our strategic objectives.
Equally important to the Group's success is to ensure we have
the enablers to support our strategy into the future. Towards the
end of 2019 we implemented a new organisational structure, creating
four divisional management teams to be responsible for the
businesses in the Group, evolving from what was previously a flat
organisation structure. These divisional teams focus on strategic
development within their markets, and the structure also gives the
Group a platform on which to integrate further acquisitions,
something that was increasingly challenging with the previous
organisation structure. This new structure will be fully
operational in 2020.
Sustainability continues to be at the heart of what we do. We
provide sustainable environmental solutions to the construction
industry in the water management and climate management space,
launching our 'Inspiring Green Urbanisation' design guide at the
Future Build exhibition in March 2019. We not only help our
customers create sustainable solutions, we also continue to drive
our own business to be more sustainable. We have further increased
our usage of recycled plastic during the year, with recycled
plastic now representing 42.0% of our consumption of plastic,
compared to 40.2% in 2018. This has been achieved through the
further roll-out of our multi-layer extrusion process in our
Residential Systems segment, helped in the latter part of the year
with the acquisition of Alderburgh which uses recycled plastic for
most of its production. We also reduced our carbon emissions in the
year as measured by tonnes of carbon dioxide equivalent (tCO2e) by
10%. I am pleased to report that in December 2019 our sustainable
credentials were recognised by the London Stock Exchange who
awarded us one of 74 'Green Economy Issuer' certificates for our
efforts in this area. We are working on a comprehensive set of
sustainability targets for the Group and will report on these later
in the year.
Coronavirus (COVID-19) is posing significant challenges for
countries around the world, with the situation developing
rapidly.
Polypipe's leadership team continues to monitor the situation
closely and take appropriate actions where necessary. The health,
safety and wellbeing of our people has always been, and continues
to be, at the forefront of everything we do. The Group and its
leadership team has a duty of care to its employees and customers,
and the evaluation of risk and taking mitigating actions to protect
our employees and customers is taken very seriously and is very
much ingrained in our culture.
To that end, the actions we are taking include the
following:
-- Implementing business continuity plans to mitigate the
specific risks associated with Coronavirus, to ensure disruption to
normal operations and customer service is minimised.
-- Increasing short term stock levels of core product ranges
whilst employee numbers allow, to minimise supply disruption to our
customers.
-- Cancelling all non-essential overseas travel, including to
and from our own overseas operations.
-- Using electronic means of communication with customers,
suppliers and employees where possible, minimising unnecessary
social proximity.
-- Instigating a regular internal communications programme to
ensure our employees are aware of the latest relevant government
advice regarding self-isolating, general WHO health advice, and the
support that the Group can provide.
-- We have a small manufacturing plant in Genoa, Italy where
production has been suspended, and we are supporting our small
number of overseas employees in the Middle East, Netherlands,
France and Ireland as appropriate.
-- Setting up a team of senior leaders to monitor and manage the situation as it develops.
There are certain features of Polypipe's business model that
give it resilience including:
-- We have 19 sites in the Group, 15 of which are in the UK, 11
of which are manufacturing sites, giving us a degree of flexibility
in production, and flexibility of locations for key back office
staff.
-- We have over 200 injection moulding machines and over 100
extruders, which means we can manage our capacity in small steps,
allowing us to closely match production to demand or available
workforce.
-- Our primary supply chain has limited dependence on overseas
suppliers, and where there is dependence it is generally in areas
that do not impact the Group's core product ranges.
-- Strong balance sheet and cashflow, no defined pension scheme, significant headroom.
We will continue to monitor events and take actions where
necessary and will update further as appropriate.
BUSINESS REVIEW
Revenue from continuing operations 2019 2018 Change LFL Change
GBPm GBPm % %
------------------------------------ ------ ------ ------- -----------
Residential Systems 260.3 245.3 6.1 (0.1)
Commercial and Infrastructure
Systems 187.3 187.9 (0.3) (3.5)
------------------------------------ ------ ------ ------- -----------
Revenue from continuing operations 447.6 433.2 3.3 (1.6)
------------------------------------ ------ ------ ------- -----------
Underlying operating profit 2019 2018 Change
GBPm % GBPm % %
------------------------------- ------ ----- ------ ----- -------
Residential Systems 53.4 20.5 46.3 18.9 15.3
Commercial and Infrastructure
Systems 24.7 13.2 27.7 14.7 (10.8)
------------------------------- ------ ----- ------ ----- -------
Underlying operating profit 78.1 17.4 74.0 17.1 5.5
------------------------------- ------ ----- ------ ----- -------
Residential Systems
Revenue in our Residential Systems segment, which is almost
exclusively derived from the UK market, was 6.1% higher than the
prior year at GBP260.3m (2018: GBP245.3m), driven by the full year
effect of the acquisition of Manthorpe Building Products on 25
October 2018, with like for like revenue excluding acquisitions
broadly in line with the prior year.
UK Residential market trends during 2019 have been mixed.
According to the Construction Products Association, the overall
private new house build market grew by 2%. However, within this
performance, housing completions were 2% higher but new housing
starts were 8% lower than the prior year, as housebuilders reduced
work in progress and worked existing sites harder in the face of an
uncertain outlook. This is an important distinction for the Group
as the majority of our products in this segment are used in the
early stages of site and plot development. Against this backdrop of
reduced starts, as well as a weak private RMI market and the
pre-Brexit merchant stock build in Q4 2018 unwinding in the first
half of 2019, the Residential Systems segment's broadly flat like
for like revenue is a strong performance. Within this performance
price increases of approximately 3% were successfully implemented
in the year, recovering cost inflation on a pound for pound basis,
leaving volumes around 3% lower than the prior year, largely
related to the unwind of merchant stock build in Q4 of 2018.
The process of integrating Manthorpe Building Products into the
Group is now complete. I am delighted with how well the business
fitted into the Group from a commercial, operational, and cultural
perspective during 2019 which is a credit to the management team
and employees at Manthorpe as well as the team at Polypipe. The
implementation of operational and commercial synergies identified
at the time of the acquisition is ahead of plan and consequently I
am pleased to report that the performance of Manthorpe in its first
full year of ownership has exceeded expectations.
During the year we created a new division within the Residential
Systems segment called Polypipe Offsite Solutions. This will give
specific focus to serving the emerging modular house building
market using new and existing Group products to create solutions
for delivery to the factory production line. Start-up expenditure
was GBP0.2m in 2019 and will be GBP1.2m in 2020, and we will look
to develop our position in this growing market.
The product development pipeline continues to deliver new and
innovative solutions that capitalise on the strategic growth
drivers of legacy material substitution, and legislative tailwinds
in water and climate management. Nuaire won the prestigious H&V
News award for Air Movement Product of the Year, recognising its
efforts in developing the innovative Noxmaster air filtration
system. The product was praised by the judges for the attention
paid to indoor air quality and to the testing and validation of the
unit. Manthorpe's reputation for innovative product design was
further enhanced in June 2019 when its G965 Dual Underfloor Vent
won the Best Building Fabric product award at the 2019 Housebuilder
Product awards, with this product subsequently being specified by a
number of National Housebuilders.
Significant investment in new production equipment helped remove
capacity constraints at our Broomhouse Lane site. In January 2019
we commissioned our fourth high output multilayer extrusion line
for the manufacture of 110mm and 160mm PVC pipe with a recycled
core, which not only increased capacity, but also underpins our
commitment to increasing the recycled content of our products.
Investment in yard expansion and layout improvements at Broomhouse
Lane during the year has resolved the logistical bottlenecks
encountered in the second half of 2018 and saw the site return to
efficient operation. Together with a strong full year contribution
from Manthorpe, an excellent performance from our residential
ventilation businesses, and other cost saving initiatives, this
helped Residential Systems deliver strong underlying operating
profit growth of 15.3% to GBP53.4m (2018: GBP46.3m) representing a
20.5% margin (2018: 18.9%).
Commercial and Infrastructure Systems
Conditions in the UK Commercial and Infrastructure markets
deteriorated progressively during the year. This resulted in
revenue in our Commercial and Infrastructure Systems segment for
the full year being 0.3% lower than the prior year at GBP187.3m
(2018: GBP187.9m), or 3.5% lower on a like for like basis excluding
acquisitions.
UK revenue, which accounts for approximately 80% of the overall
segment revenue, was 1.5% lower than the prior year, driven by
continued political and economic uncertainty causing project delays
and cancellations, and towards the end of the year, adverse weather
conditions and flooding in the Midlands and the North impacting
contractors' ability to access sites. These conditions, together
with some strong comparatives in the second half of 2018, were
partially offset by revenue from the recently acquired Alderburgh
Group.
Excellent progress has been made on product launches and
projects in the year. Our Polystorm range (including geocellular
attenuation tanks) was extended with the launch of the PSM5
'Polystorm Deep' product, to address performance levels in the
forthcoming CIRIA 737 Regulations and to improve burial depth
performance overall. In June, the world's first fully portable
international standard hockey pitch was installed at The Twickenham
Stoop ahead of the Pro League matches between Team GB and New
Zealand. Laid in under a week, the unique modular pitch system uses
Permavoid for both structural support and irrigation management. In
March we launched our 'Inspiring Green Urbanisation' design guide
at the Future Build exhibition, showing how our next generation
sustainable water management solutions will help re-imagine the
urban landscape. Our Fuze range of HDPE electrofusion jointed soil
stacks continue to make inroads into the market, on projects such
as Essex House in Croydon, the world's tallest prefabricated twin
tower with over 540 flats. Towards the end of the year, our
Building Services division launched a new range of polypropylene
high pressure hot and cold water distribution systems for tall
buildings called MecFlow, with the unique click-weld electrofusion
jointing technology and pre-cut fabricated parts for ease of
assembly on site. This is a new part of the market for Polypipe,
and fits with the Group's strategy of providing a 'one stop shop'
for our customers. Initial contractor feedback is excellent, and
the project bank looks healthy for 2020. Our Building Services
division also launched the Advantage Service covering both Fuze and
MecFlow product ranges, which provides design support, project
programme integration, full fabrication service and pre-site
testing. This innovative service provides our clients with
fabricated parts delivered direct to site, which takes expensive
skilled activity away from site and significantly reduces
waste.
Export revenue, which accounts for approximately 20% of overall
segment revenue, was 4.6% higher than the prior year, with improved
volumes in Continental Europe and the full year effect of the
Permavoid acquisition, which has a wider geographic reach, offset
partially by further reductions in the Middle East as conditions in
this market continue to be challenging.
On 1 October 2019, we announced the acquisition of the
Alderburgh Group of companies ('Alderburgh'), a leading designer,
manufacturer and installer of plastic injection moulded stormwater
attenuation tanks, structural waterproofing and geocellular
membranes, gas barrier and ventilation materials, supplying the UK,
Irish and Scandinavian markets, for a total consideration of
GBP14.0m on a cash and debt free, normalised working capital basis.
Alderburgh sells products across six distinct categories, with
c.80% of revenues derived from its geocellular attenuation systems,
the stackable Versavoid system, and the Pluvial cube system. These
products help address the requirements of the Sustainable Urban
Drainage regulations by creating load-bearing tanks underground to
store stormwater and let it drain away naturally, rather than
letting stormwater rush into the watercourse creating flood events
downstream. Unlike Polypipe's Polystorm and Permavoid systems which
are manufactured as single finished cells, Alderburgh's Versavoid
system is a stackable system, which means individual parts of the
cell can be nested for transportation and assembled on site, which
in certain situations can provide a more cost- effective and lower
carbon emission solution. Furthermore, through its Solutek
specialist installation service, Alderburgh offers a supply and fit
solution to customers, something that has become increasingly
popular in recent years and in which, to date, Polypipe has not
participated. Although early days, the business has settled in to
the Group well, and our focus will be on completing the integration
process during the coming year and delivering the opportunities
that the combination of Polypipe and Alderburgh create.
Commercial and Infrastructure Systems delivered an underlying
operating profit of GBP24.7m (2018: GBP27.7m) and represents a
13.2% margin (2018: 14.7%). The key driver of reduced margin in the
year in this segment relates to operational leverage on reduced UK
volumes particularly in the second half.
OUTLOOK
The Coronavirus pandemic is under close review by management. We
are taking all appropriate actions to ensure the health, safety and
wellbeing of our employees and to minimise disruption to our
operations, whilst watching our end markets closely. To date, we
have seen no direct impact on Group performance. The Group has a
strong balance sheet and substantial headroom on its borrowing
facility to cater for emerging risks.
We are positioned well over the medium term within our markets,
delivering innovative new products, benefiting from legacy material
substitution, legislative tailwinds and a 'one stop shop' service
for our customers across several different sectors of the
construction industry.
Financial Review
REVENUE AND OPERATING MARGIN
2019 2018
GBPm GBPm Change
---------------------------- ----- ------ -------
Revenue 447.6 433.2 +3.3%
Underlying operating profit 78.1 74.0 +5.5%
Underlying operating margin 17.4% 17.1% +30bps
2019 2018
Revenue by geographic destination GBPm GBPm Change
---------------------------------- ----- ------ -------
UK 401.2 387.1 +3.6%
Rest of Europe 23.6 21.5 +9.8%
Rest of World 22.8 24.6 -7.3%
Group 447.6 433.2 +3.3%
Group revenue for the year ended 31 December 2019 was GBP447.6m
(2018: GBP433.2m), an increase of 3.3%. With the acquisition of
Alderburgh on 1 October 2019, Group revenue includes GBP2.7m from
this business for the period since acquisition. UK revenue growth
was up 3.6% with approximately 2.8% driven by price increases, 4.9%
from acquisitions as volumes declined 4.3%. On a like-for-like
basis, Group revenue decreased by 1.6%. This was in line with the
overall UK construction market where the Construction Products
Association (CPA) winter forecast suggested another year-on-year
decline. Uncertainty surrounding the UK post-Brexit and around
major infrastructure projects led the CPA to downgrade its autumn
forecasts for construction output growth. The Group's year-on-year
growth for the first half was strong at 6.2%, compared to second
half growth of 0.6% which was impacted by challenging prior year
comparators and weaker demand due to market uncertainty.
Operating profit was GBP67.6m, an increase of 2.7%. The Group
underlying operating margin increased to 17.4% (2018: 17.1%) with
the dilutive effects of price increases to recover inflation being
more than offset by cost improvement initiatives undertaken
progressively through the year and the accretive effect of
acquisitions. Profit before tax increased by 3.3% to GBP60.1m
(2018: GBP58.2m).
Investment in product development and innovation remains a key
area of focus for the Group. In 2019, underlying operating profit
benefited from GBP1.6m of HM Revenue & Customs approved
Research & Development Expenditure Credit scheme, relating to
the years ended 31 December 2017 and 2018. This will provide us
with further opportunity to increase our investment in developing
new and innovative products.
ACQUISITIONS
On 1 October 2019, the Group acquired Alderburgh, a specialist
in the design, manufacture, supply and installation of modular
storm water management and building protection systems, and
associated land and buildings for GBP14.0m on a cash and debt free,
normalised working capital basis. The acquisition of Alderburgh has
contributed GBP2.7m to Group revenue in the year and revenue for
the full 12-month period ended 31 December 2019 was GBP15.3m. The
acquisition was funded entirely from the Group's revolving credit
facility. Acquisition costs of GBP0.6m have been charged to
non-underlying items.
IFRS 16, LEASES
IFRS 16, Leases, was issued in January 2016 and is mandatory for
annual reporting periods commencing 1 January 2019. The Group did
not apply for early adoption of IFRS 16 and has reported under the
new standard in the consolidated financial statements for the year
ended 31 December 2019. Existing leases mainly relate to cars, some
property and forklift trucks used in warehousing. The Group does
not have any leases previously classified as finance leases. The
Group has adopted the modified retrospective approach to transition
and has not restated comparative amounts for the year prior to
first adoption. The Group's lease commitments have been brought
onto the Group's balance sheet and the timing of the recognition of
lease costs within the income statement has changed. The Group has
recognised an increase in total liabilities of GBP14.8m, with the
same increase in total assets.
NON-UNDERLYING ITEMS
Non-underlying items in both 2019 and 2018 included non-cash
amortisation charges in respect of intangible assets recognised
with acquisitions made since 2015. In addition, the amortisation of
intangible assets charge in 2019 was impacted by the fair valuation
of intangible fixed assets on the acquisition balance sheet of
Alderburgh. Intangible assets have increased by GBP4.8m following
the acquisition of Alderburgh, attracting additional amortisation
of GBP0.1m. Acquisition costs in the year amounted to GBP3.2m.
Non-underlying items comprised:
2019 2018
GBPm GBPm
------------------------------------------------------- ----- -----
Amortisation of intangible assets 7.5 5.9
Acquisition costs 2.4 2.0
Contingent consideration on acquisitions 0.8 0.3
Unamortised debt issue costs written off - 0.6
Loss on disposal of assets classified as held-for-sale - 0.1
------------------------------------------------------- ----- -----
Non-underlying items before taxation 10.7 8.9
Taxation (1.4) (1.1)
------------------------------------------------------- ----- -----
Non-underlying items after taxation 9.3 7.8
------------------------------------------------------- ----- -----
EXCHANGE RATES
The Group trades predominantly in Sterling but has some revenues
and costs in other currencies, mainly the US Dollar and the Euro,
and takes appropriate forward cover on these cash flows using
forward currency derivative contracts in accordance with its
hedging policy.
FINANCE COSTS
Underlying finance costs of GBP7.3m (2018: GBP6.9m) were ahead
of last year due to the impact of IFRS 16 and higher borrowing
levels following the acquisitions in 2019 and 2018. Interest cover
was 11.3x (2018: 11.3x).
Interest is payable on the RCF at LIBOR plus an interest rate
margin ranging from 0.90% to 2.75%. The interest rate margin at 31
December 2019 was 1.65% (2018: 1.65%).
In order to reduce exposure to future increases in interest
rates the Group entered into interest rate swaps at fixed rates
ranging between 1.735% and 2.21% (excluding margin) with notional
amounts hedged ranging from GBP60.0m to GBP82.0m over the period of
the interest rate swaps.
Taxation
Underlying taxation:
The underlying tax charge in 2019 was GBP11.9m (2018: GBP10.5m)
representing an effective tax rate of 16.8% (2018: 15.6%). This was
below the UK standard tax rate of 19.0% (2018: 19.0%). Patent box
relief contributes to a lowering of the effective tax rate by some
1.3 percentage points.
Taxation on non-underlying items:
The non-underlying taxation credit of GBP1.4m represents an
effective rate of 13.1% (2018: 12.4%), due to GBP3.2m of
acquisition costs being treated as disallowable for tax
purposes.
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
2019 2018
-------------------- ----- -----
Pence per share:
Basic 24.9 24.5
Underlying basic 29.6 28.4
Diluted 24.6 24.3
Underlying diluted 29.2 28.1
-------------------- ----- -----
The Directors consider that the underlying earnings per share
(EPS) measure provides a better and more consistent indication of
the Group's underlying financial performance and more meaningful
comparison with prior and future periods to assess trends in our
financial performance.
Underlying basic EPS improved by 4.2% in 2019 due to the
improved underlying operating result after taxation.
Dividend
The final dividend of 8.1 pence per share is being recommended
for payment on 28 May 2020 to shareholders on the register at the
close of business on 24 April 2020. The ex dividend date will be 23
April 2020.
Our dividend policy is to pay a minimum of 40% of the Group's
annual underlying profit after tax. The Directors intend that the
Group will pay the total annual dividend in two tranches, an
interim dividend and a final dividend, to be announced at the time
of announcement of the interim and preliminary results respectively
with the interim dividend being approximately one half of the prior
year's final dividend.
Balance Sheet
The Group's balance sheet is summarised below:
2019 2018
GBPm GBPm
----------------------------------------------------- --------- ---------
Property, plant and equipment 125.8 118.4
Right-of-use assets 14.8 -
Goodwill 345.6 343.0
Other intangible assets 56.2 58.9
Net working capital 3.0 (4.1)
Taxation (14.3) (17.3)
Other current and non-current assets and liabilities (4.9) (3.5)
Net debt (loans and borrowings, net of cash and
cash equivalents and lease
liabilities) (164.8) (164.2)
----------------------------------------------------- --------- ---------
Net assets 361.4 331.2
----------------------------------------------------- --------- ---------
The net value of property, plant and equipment has increased by
GBP7.4m and, excluding the effect of the inclusion of assets from
the acquisition of Alderburgh, increased by GBP1.5m. The value of
right-of-use assets has increased by GBP14.8m following the Group's
adoption of IFRS 16 in the year.
Goodwill increased by GBP2.6m due to the acquisition of
Alderburgh. Other intangible assets increased by GBP4.8m with fair
value adjustments associated with the acquisition of Alderburgh
being offset by the routine amortisation of patents, brand names
and customer relationships. Net working capital increased by
GBP7.1m but is expected to normalise in the first half of 2020. Net
debt is discussed below.
Pensions
The Group does not have any defined benefit pension schemes and
only has defined contribution pension arrangements in place.
Pension costs for the year amounted to GBP3.4m (2018: GBP2.8m).
Cash Flow and Net Debt
The Group's cash flow statement is summarised below:
2019 2018
GBPm GBPm
---------------------------------------------------- ------ ------
Operating cash flows before movement in net working
capital 95.3 86.2
Add back non-underlying cash items 1.4 4.4
---------------------------------------------------- ------ ------
Underlying operating cash flows before movement
in net working capital 96.7 90.6
Movement in net working capital (5.9) 3.8
Capital expenditure (21.9) (23.2)
Proceeds from sale and leaseback 3.9 -
---------------------------------------------------- ------ ------
Underlying cash generated from operations after
net capital expenditure 72.8 71.2
Income tax paid (12.4) (11.2)
Interest paid (7.4) (6.1)
Non-underlying cash items (1.4) (4.4)
Acquisition of businesses (12.2) (56.1)
Disposal of businesses - 13.6
Dividends paid (23.7) (22.3)
Proceeds from exercise of share options net of
purchase of own shares 2.4 0.3
Other (3.9) (0.8)
---------------------------------------------------- ------ ------
Movement in net debt, pre IFRS 16 14.2 (15.8)
Lease liabilities - IFRS 16 (14.8) -
---------------------------------------------------- ------ ------
Movement in debt - including IFRS 16 (0.6) (15.8)
---------------------------------------------------- ------ ------
Delivery of good cash generation remains core to the Group's
strategy. Underlying cash generated from operations after net
capital expenditure at GBP72.8m (2018: GBP71.2m) represents a
conversion rate of 93% (2018: 96%). The slight decline in
conversion rate was attributable to increased levels of working
capital which are expected to normalise through the course of 2020.
Net capital expenditure investment fell to GBP18.0m (2018:
GBP23.2m), following the Group's decision to carry out the sale and
leaseback of its truck fleet in December 2019. Net proceeds from
the sale were GBP3.9m. The Group continued to focus its investment
on capacity expansion, efficiency improvement and innovation
projects. The Group spent GBP12.2m on the acquisition of Alderburgh
in October 2019.
Net debt of GBP164.8m comprised:
2019 2018 Change
GBPm GBPm GBPm
------------------------------------------- ------- ------- ------
Bank loans (199.0) (212.0) 13.0
Cash and cash equivalents 47.7 46.2 1.5
------------------------------------------- ------- ------- ------
Net debt (excluding unamortised debt issue
costs) (151.3) (165.8) 14.5
Unamortised debt issue costs 1.3 1.6 (0.3)
IFRS 16 (14.8) - (14.8)
------------------------------------------- ------- ------- ------
Net debt (164.8) (164.2) (0.6)
------------------------------------------- ------- ------- ------
Net debt (excluding unamortised debt issue
costs): pro forma EBITDA 1.7 1.7
------------------------------------------- ------- ------- ------
FINANCING
The Group has an RCF committed through to November 2023 with two
further uncommitted annual renewals through to November 2025. The
facility limit is GBP300m with an uncommitted 'accordion' facility
of up to GBP50m on top. At 31 December 2019, GBP199m of the RCF was
drawn down.
The Group is subject to two financial covenants. At 31 December
2019 there was significant headroom and facility interest cover and
net debt to EBITDA covenants were comfortably achieved:
Position
at
Covenant 31 December
Covenant: requirement 2019
--------------- ------------- ------------
Interest cover >4.0:1 11.3:1
Leverage <3.0:1 1.5:1
--------------- -------------- ------------
At 31 December 2019, liquidity headroom (cash and undrawn
committed banking facilities) was GBP148.7m (2018: GBP134.2m).
Focus will continue to be on deleveraging and our net debt to
EBITDA ratio stood at 1.6x pro forma EBITDA at 31 December 2019
(2018: 1.7x), increasing to 1.7x including the effects of IFRS 16.
This headroom means the Group enters 2020 well-positioned with a
strong balance sheet.
Principal Risks and Uncertainties
The principal risks and uncertainties which could impact the
Group are those detailed in the Group's Annual Report and Accounts.
These cover the Strategic, Financial and Operational risks and,
other than further consideration towards the impact of Brexit, have
not changed significantly during the year.
Forward-Looking Statements
This report contains various forward-looking statements that
reflect management's current views with respect to future events
and financial and operational performance. These forward-looking
statements involve known and unknown risks, uncertainties,
assumptions, estimates and other factors, which may be beyond the
Group's control and which may cause actual results or performance
to differ materially from those expressed or implied from such
forward-looking statements. All statements (including
forward-looking statements) contained herein are made and reflect
knowledge and information available as of the date of preparation
of this report and the Group disclaims any obligation to update any
forward-looking statements, whether as a result of new information,
future events or results or otherwise. There can be no assurance
that forward-looking statements will prove to be accurate, as
actual results and future events could differ materially from those
anticipated in such statements. Accordingly, readers should not
place undue reliance on forward-looking statements due to the
inherent uncertainty therein. Nothing in this report should be
construed as a profit forecast.
Directors' Responsibilities
Each of the Directors confirms that, to the best of their
knowledge, the consolidated financial statements, prepared in
accordance with IFRS as adopted by European Union standards, give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Group and the undertakings included in
the consolidation taken as a whole; and the Group Results, Chief
Executive Officer's Review and Financial Review includes a fair
review of the development and performance of the business and the
position of the Group and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
Annual General Meeting
The Annual General Meeting is scheduled to be held on 21 May
2020.
By order of the Board.
Martin Payne Paul James
Chief Executive Officer Chief Financial Officer
Group income statement
FOR THE YEARED 31 DECEMBER 2019
2019 2018
Non- Non-
Underlying underlying Total Underlying underlying Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Continuing operations
Revenue 3 447.6 - 447.6 433.2 - 433.2
Cost of sales 4 (255.2) - (255.2) (251.8) - (251.8)
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Gross profit 192.4 - 192.4 181.4 - 181.4
Selling and distribution
costs (71.7) - (71.7) (69.6) - (69.6)
Administration
expenses 5 (42.6) (3.0) (45.6) (37.8) (2.3) (40.1)
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Trading profit 78.1 (3.0) 75.1 74.0 (2.3) 71.7
Amortisation of
intangible assets 5 - (7.5) (7.5) - (5.9) (5.9)
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
3,
Operating profit 4 78.1 (10.5) 67.6 74.0 (8.2) 65.8
5,
Finance costs 6 (7.3) (0.2) (7.5) (6.9) (0.7) (7.6)
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Profit before tax 3 70.8 (10.7) 60.1 67.1 (8.9) 58.2
Income tax 7 (11.9) 1.4 (10.5) (10.5) 1.1 (9.4)
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Profit from continuing
operations 58.9 (9.3) 49.6 56.6 (7.8) 48.8
Profit from discontinued
operations 5 - - - - 0.3 0.3
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Profit for the
year attributable
to the owners of
the parent company 58.9 (9.3) 49.6 56.6 (7.5) 49.1
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Basic earnings
per share (pence)
From continuing
operations 8 24.9 24.5
From discontinued
operations 8 - 0.2
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
8 24.9 24.7
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Diluted earnings
per share (pence)
From continuing
operations 8 24.6 24.3
From discontinued
operations 8 - 0.2
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
8 24.6 24.5
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Dividend per share
(pence) - interim 9 4.0 3.7
Dividend per share
(pence) - final 9 8.1 7.9
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
9 12.1 11.6
------------------------- ----- ---------- ----------- ------- ---------- ----------- -------
Group statement of comprehensive income
for the year ended 31 december 2019
2019 2018
GBPm GBPm
----------------------------------------------------- ----- -----
Profit for the year attributable to the owners
of the parent company 49.6 49.1
----------------------------------------------------- ----- -----
Other comprehensive income:
Items which may be reclassified subsequently
to the income statement:
Exchange differences on translation of foreign
operations (0.4) 0.1
Recycling of foreign exchange differences to
the income statement - (0.3)
Effective portion of changes in fair value
of interest rate swaps 0.5 1.4
Effective portion of changes in fair value
of forward foreign currency derivatives 0.1 -
Tax relating to items which may be reclassified
subsequently to the income statement (0.1) (0.2)
----------------------------------------------------- ----- -----
Other comprehensive income for the year net
of tax 0.1 1.0
----------------------------------------------------- ----- -----
Total comprehensive income for the year attributable
to the owners of the parent company 49.7 50.1
----------------------------------------------------- ----- -----
Attributable to the owners of the parent company
from:
Continuing operations 49.7 50.2
Discontinued operations - (0.1)
----------------------------------------------------- ----- -----
49.7 50.1
----------------------------------------------------- ----- -----
Group balance sheet
at 31 december 2019
31 December 31 December
2019 2018
Notes GBPm GBPm
--------------------------------------- ----- ----------- -----------
Non-current assets
Property, plant and equipment 10 125.8 118.4
Right-of-use assets 14.8 -
Intangible assets 11 401.8 401.9
--------------------------------------- ----- ----------- -----------
Total non-current assets 542.4 520.3
--------------------------------------- ----- ----------- -----------
Current assets
Inventories 59.7 58.1
Trade and other receivables 40.8 37.4
Cash and cash equivalents 47.7 46.2
--------------------------------------- ----- ----------- -----------
Total current assets 148.2 141.7
--------------------------------------- ----- ----------- -----------
Total assets 690.6 662.0
--------------------------------------- ----- ----------- -----------
Current liabilities
Trade and other payables 14 (97.5) (99.6)
Lease liabilities 14 (2.9) -
Deferred and contingent consideration 14 (3.4) (1.7)
Derivative financial instruments 14 (0.5) (1.1)
Income tax payable (3.8) (6.3)
--------------------------------------- ----- ----------- -----------
Total current liabilities (108.1) (108.7)
--------------------------------------- ----- ----------- -----------
Non-current liabilities
Loans and borrowings 14 (197.7) (210.4)
Lease liabilities 14 (11.9) -
Other liabilities 14 (1.0) (0.7)
Deferred income tax liabilities (10.5) (11.0)
--------------------------------------- ----- ----------- -----------
Total non-current liabilities (221.1) (222.1)
--------------------------------------- ----- ----------- -----------
Total liabilities (329.2) (330.8)
--------------------------------------- ----- ----------- -----------
Net assets 361.4 331.2
--------------------------------------- ----- ----------- -----------
Capital and reserves
Equity share capital 0.2 0.2
Capital redemption reserve 1.1 1.1
Own shares - (3.8)
Hedging reserve (0.4) (0.9)
Foreign currency retranslation reserve 0.1 0.5
Retained earnings 360.4 334.1
--------------------------------------- ----- ----------- -----------
Total equity 361.4 331.2
--------------------------------------- ----- ----------- -----------
Group statement of changes in equity
for the year ended 31 december 2019
Foreign
Equity Capital currency
share redemption Own Hedging retranslation Retained Total
capital reserve shares reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- -------- ----------- ------- -------- -------------- --------- -------
At 31 December
2017 0.2 1.1 (4.3) (2.1) 0.7 306.4 302.0
--------------------- -------- ----------- ------- -------- -------------- --------- -------
Profit for the
year - - - - - 49.1 49.1
Other comprehensive
income - - - 1.2 (0.2) - 1.0
--------------------- -------- ----------- ------- -------- -------------- --------- -------
Total comprehensive
income for the
year - - - 1.2 (0.2) 49.1 50.1
Dividends paid - - - - - (22.3) (22.3)
Share-based payments
charge - - - - - 1.0 1.0
Share-based payments
settled - - 0.5 - - (0.2) 0.3
Share-based payments
excess tax benefit - - - - - 0.1 0.1
--------------------- -------- ----------- ------- -------- -------------- --------- -------
At 31 December
2018 0.2 1.1 (3.8) (0.9) 0.5 334.1 331.2
--------------------- -------- ----------- ------- -------- -------------- --------- -------
Profit for the
year - - - - - 49.6 49.6
Other comprehensive
income - - - 0.5 (0.4) - 0.1
--------------------- -------- ----------- ------- -------- -------------- --------- -------
Total comprehensive
income for the
year - - - 0.5 (0.4) 49.6 49.7
Dividends paid - - - - - (23.7) (23.7)
Share-based payments
charge - - - - - 1.2 1.2
Share-based payments
settled - - 3.8 - - (1.4) 2.4
Share-based payments
excess tax benefit - - - - - 0.6 0.6
--------------------- -------- ----------- ------- -------- -------------- --------- -------
At 31 December
2019 0.2 1.1 - (0.4) 0.1 360.4 361.4
--------------------- -------- ----------- ------- -------- -------------- --------- -------
Group cash flow statement
for the year ended 31 december 2019
2019 2018
Notes GBPm GBPm
----------------------------------------------- ----- ------ -------
Operating activities
Profit before tax 60.1 58.2
Finance costs 6 7.5 7.6
----------------------------------------------- ----- ------ -------
Operating profit 67.6 65.8
Profit before tax from discontinued operations 5 - 0.3
Non-cash items:
Profit on disposal of property, plant
and equipment (0.8) (0.3)
Research and development expenditure
credit (1.6) -
Non-underlying items:
- amortisation of intangible assets 5 7.5 5.9
- provision for acquisition costs 5 3.0 2.2
- loss on disposal of assets classified
as held-for-sale 5 - 0.1
Depreciation: property, plant and equipment 16.6 15.6
Depreciation: right-of-use assets 3.2 -
Share-based payments 1.2 1.0
Cash items:
- settlement of restructuring costs - (2.3)
- settlement of aborted acquisition costs (0.2) (0.2)
- settlement of acquisition costs (1.2) (1.9)
----------------------------------------------- ----- ------ -------
Operating cash flows before movement
in working capital 95.3 86.2
Movement in working capital:
Receivables 2.2 (2.9)
Payables (7.3) 10.8
Inventories (0.8) (4.1)
----------------------------------------------- ----- ------ -------
Cash generated from operations 89.4 90.0
Income tax paid (12.4) (11.2)
----------------------------------------------- ----- ------ -------
Net cash flows from operating activities 77.0 78.8
----------------------------------------------- ----- ------ -------
Investing activities
Acquisition of businesses net of cash
at acquisition (12.2) (56.1)
Proceeds from disposal of property, plant
and equipment 0.9 0.9
Purchase of property, plant and equipment (22.3) (24.1)
Disposal of subsidiary undertaking net
of overdraft divested - 13.6
----------------------------------------------- ----- ------ -------
Net cash flows from investing activities (33.6) (65.7)
----------------------------------------------- ----- ------ -------
Financing activities
New bank loan - 226.1
Net repayment of bank loan (13.0) (199.1)
Proceeds from sale and leaseback of plant
and equipment 3.4 -
Interest paid (7.4) (6.1)
Dividends paid 9 (23.7) (22.3)
Proceeds from exercise of share options 2.4 0.3
Debt issue costs - (1.6)
Settlement of lease liabilities (3.5) -
----------------------------------------------- ----- ------ -------
Net cash flows from financing activities (41.8) (2.7)
----------------------------------------------- ----- ------ -------
Net change in cash and cash equivalents 1.6 10.4
----------------------------------------------- ----- ------ -------
Cash and cash equivalents at 1 January 46.2 35.7
Net foreign exchange difference (0.1) 0.1
----------------------------------------------- ----- ------ -------
Cash and cash equivalents at 31 December 47.7 46.2
----------------------------------------------- ----- ------ -------
The net decrease in cash and cash equivalents in the year from
discontinued operations included in the above was GBPnil (2018:
GBP4.2m).
1. Basis of preparation
The preliminary results for the year ended 31 December 2019 have
been prepared in accordance with the recognition and measurement
requirements of International Financial Reporting Standards (IFRSs)
as endorsed by the European Union regulations as they apply to the
consolidated financial statements of the Group for the year ended
31 December 2019. Whilst the financial information included in this
preliminary announcement has been computed in accordance with the
recognition and measurement requirements of IFRS, this announcement
does not itself contain sufficient information to comply with IFRS.
The accounting policies adopted have been consistently applied in
all material aspects to all the periods presented, except for the
adoption of new standards effective 1 January 2019.
The financial information set out in this announcement does not
constitute the statutory accounts for the Group within the meaning
of Section 435 of the Companies Act 2006. The statutory accounts
for the year ended 31 December 2018 have been filed with the
Registrar of Companies. The statutory accounts for the year ended
31 December 2019 will be filed in due course. The auditors' report
on these accounts was not qualified or modified and did not contain
any statement under sections 498(2) or (3) of the Companies Act
2006 or any preceding legislation.
2. Change in accounting standards
The Group adopted IFRS 16 using the modified retrospective
method with the date of initial application of 1 January 2019.
Under this method, the standard is applied retrospectively with the
cumulative effect of initially applying the standard recognised at
the date of initial application. The Group elected to use the
transition practical expedient allowing the standard to be applied
only to contracts that were previously identified as leases
applying IAS 17 and IFRIC 4 at the date of initial application. The
Group also elected to use the recognition exemptions for lease
contracts that, at the commencement date, have a lease term of 12
months or less and do not contain a purchase option (short-term
leases), and lease contracts for which the underlying asset is of
low value (low-value assets).
The effect of adoption of IFRS 16 at 1 January 2019 was as
follows:
GBPm
-----
Assets
Right-of-use assets 14.0
Total assets 14.0
Liabilities
Lease liabilities 14.0
-----
Total liabilities 14.0
-----
Total adjustment on equity:
Retained earnings -
Non-controlling interests -
-----
-
-----
a) Nature of the effect of adoption of IFRS 16
The Group has lease contracts for various items of plant,
machinery, vehicles and other equipment. Before the adoption of
IFRS 16, the Group classified its leases as finance or operating
leases, based on an evaluation of the terms and conditions, whether
it retained or acquired the significant risks and rewards of
ownership of these assets and accordingly whether the lease
required an asset and liability to be recognised on the balance
sheet. Leases where the lessor retained a significant portion of
the risks and benefits of ownership of the asset were classified as
operating leases and accordingly the leased property was not
capitalised, rentals payable were charged in the income statement
as rent expense on a straight-line basis over the lease term, and
any prepaid or accrued rent was recognised under prepayments and
trade and other payables, respectively.
Upon adoption of IFRS 16, the Group applied a single recognition
and measurement approach for all leases, except for short-term
leases and leases of low-value assets. The standard provides
specific transition requirements and practical expedients, which
have been applied by the Group.
Leases previously accounted for as operating leases
The Group recognised right-of-use assets and lease liabilities,
except for short-term leases and leases of low-value assets. The
right-of-use assets were recognised based on the amount equal to
the lease liabilities. Lease liabilities were recognised based on
the present value of the remaining lease payments, discounted using
incremental borrowing rates at the date of initial application.
The Group also applied the available practical expedients
wherein it:
-- relied on its assessment of whether leases are onerous
immediately before the date of initial application;
-- excluded the initial direct costs from the measurement of the
right-of-use asset at the date of initial application; and
-- used hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
Based on the foregoing, at 1 January 2019:
-- Right-of-use assets of GBP14.0m were recognised and presented
separately in the balance sheet. Additional lease liabilities of
GBP14.0m (included in interest bearing loans and borrowings) were
recognised; and
-- There was no deferred tax impact.
The lease liabilities at 1 January 2019 can be reconciled to the
operating lease commitments at 31 December 2018 as follows:
GBPm
------
Operating lease commitments at 31 December 2018 14.0
Additional lease commitments identified at 31
December 2018 2.0
------
16.0
Weighted average incremental borrowing rate at
1 January 2019 3.12%
Discounted operating lease commitments at 1 January
2019 14.0
Lease liabilities at 1 January 2019 14.0
------
b) Summary of new accounting policies
Set out below are the new accounting policies of the Group upon
adoption of IFRS 16, which have been applied from the date of
initial application:
Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease (i.e. the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the
Group is reasonably certain to obtain ownership of the leased asset
at the end of the lease term, the recognised right-of-use assets
are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. Right-of-use assets are
subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a
rate are recognised as an expense in the period in which the event
or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
in-substance fixed lease payments or a change in the assessment to
purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to
its short-term leases of machinery and equipment (i.e., those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to
leases that are considered of low value (i.e. below GBP5,000).
Lease payments on short-term leases and leases of low-value assets
are recognised as an expense on a straight-line basis over the
lease term.
Determining the lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group has the option, under some of its leases, to lease the
assets for additional terms. The Group applies judgement in
evaluating whether it is reasonably certain to exercise the option
to renew. That is, it considers all relevant factors that create an
economic incentive for it to exercise the renewal. After the
commencement date, the Group reassesses the lease term if there is
a significant event or change in circumstances that is within its
control and affects its ability to exercise (or not to exercise)
the option to renew (e.g. a change in business strategy).
c) Amounts recognised in the balance sheet and income
statement
Set out below are the carrying amounts of the Group's
right-of-use assets and lease liabilities and the movements during
the period:
Right-of-use assets Lease liabilities
Freehold Plant
land and and other Motor
buildings equipment vehicles Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2019 8.5 5.1 0.4 14.0 (14.0)
Additions 0.1 3.8 0.1 4.0 (4.0)
Depreciation (1.5) (1.4) (0.3) (3.2) 0.0
Unwind of discount (0.3)
Payments 3.5
-------------------- ----------- ----------- ---------- ------ ------------------
At 31 December
2019 7.1 7.5 0.2 14.8 (14.8)
-------------------- ----------- ----------- ---------- ------ ------------------
3. Segment information
IFRS 8, Operating Segments, requires operating segments to be
identified on the basis of the internal financial information
reported to the Chief Operating Decision Maker (CODM). The Group's
CODM is deemed to be the Board of Directors, who are primarily
responsible for the allocation of resources to segments and the
assessment of performance of the segments.
The Group has two reporting segments - Residential Systems and
Commercial and Infrastructure Systems. The reporting segments are
organised based on the nature of the end markets served. There are
no significant judgements in aggregating operating segments to
arrive at the reporting segments. Inter-segment sales are on an
arm's length basis in a manner similar to transactions with third
parties.
2019 2018
Commercial Commercial
Residential & Infrastructure Residential & Infrastructure
Systems Systems Total Systems Systems Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ----------- ----------------- ------ ----------- ----------------- ------
Continuing operations
Segmental revenue 264.8 197.1 461.9 249.9 197.2 447.1
Inter-segment revenue (4.5) (9.8) (14.3) (4.6) (9.3) (13.9)
---------------------- ----------- ----------------- ------ ----------- ----------------- ------
Revenue 260.3 187.3 447.6 245.3 187.9 433.2
---------------------- ----------- ----------------- ------ ----------- ----------------- ------
Underlying operating
profit * 53.4 24.7 78.1 46.3 27.7 74.0
Non-underlying
items - segmental (3.5) (5.4) (8.9) (3.6) (4.5) (8.1)
---------------------- ----------- ----------------- ------ ----------- ----------------- ------
Segmental operating
profit 49.9 19.3 69.2 42.7 23.2 65.9
Non-underlying
items - Group (1.6) (0.1)
---------------------- ----------- ----------------- ------ ----------- ----------------- ------
Operating profit 67.6 65.8
Non-underlying
items - finance
costs (0.2) (0.7)
Finance costs (7.3) (6.9)
---------------------- ----------- ----------------- ------ ----------- ----------------- ------
Profit before tax 60.1 58.2
---------------------- ----------- ----------------- ------ ----------- ----------------- ------
* Underlying operating profit is stated before non-underlying
items as defined in the Group Accounting Policies in the Annual
Report and Accounts, and is the measure of segment profit used by
the Group's CODM. Details of the non-underlying items of GBP10.7m
(2018: GBP8.9m) are set out below at non-underlying items before
tax.
Geographical analysis
2019 2018
Revenue by destination GBPm GBPm
----------------------- ----- -----
Continuing operations
UK 401.2 387.1
Rest of Europe 23.6 21.5
Rest of World 22.8 24.6
----------------------- ----- -----
Total - Group 447.6 433.2
----------------------- ----- -----
4. Operating profit
2019 2018
GBPm GBPm
---------------------------------------------------- ----- -----
Income statement charges
Continuing operations
Depreciation of property, plant and equipment
(owned) 16.6 15.3
Depreciation of right-of-use assets 3.2 -
Cost of inventories recognised as an expense 255.2 251.8
Operating lease payments - minimum lease payments - 3.9
Research and development costs written off 0.9 0.7
---------------------------------------------------- ----- -----
Discontinued operations
Depreciation of property, plant and equipment
(owned) - 0.3
Cost of inventories recognised as an expense - 13.5
Operating lease payments - minimum lease payments - -
---------------------------------------------------- ----- -----
Income statement credits - continuing operations
Profit on disposal of property, plant and equipment 0.8 0.3
---------------------------------------------------- ----- -----
5. Non-underlying items
Non-underlying items comprised:
2019 2018
Gross Tax Net Gross Tax Net
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----- ----- ----- ----- ----- -----
Administration expenses:
Acquisition costs
- acquisition and
other M&A activity 3.0 (0.1) 2.9 2.2 - 2.2
Administration expenses:
Loss on disposal
of assets classified
as held-for-sale - - - 0.1 - 0.1
Amortisation of intangible
assets 7.5 (1.3) 6.2 5.9 (1.0) 4.9
Finance costs: Unamortised
debt issue costs
written off - - - 0.6 (0.1) 0.5
Finance costs: Unwind
of discount on contingent
consideration 0.2 - 0.2 0.1 - 0.1
Discontinued operations:
Profit from discontinued
operations - - - (0.3) - (0.3)
--------------------------- ----- ----- ----- ----- ----- -----
Total non-underlying
items 10.7 (1.4) 9.3 8.6 (1.1) 7.5
--------------------------- ----- ----- ----- ----- ----- -----
Acquisition costs in 2019 relate to the acquisition of the
Alderburgh Group of companies and other M&A activity. The costs
in 2018 relate to the acquisitions of Manthorpe Building Products
Holdings Limited and Permavoid Limited.
The loss on disposal of assets classified as held-for-sale
relates to surplus freehold land and buildings at
Wolverhampton.
The discontinued operations relate to the sale of Polypipe
France Holding SAS.
6. Finance costs
2019 2018
GBPm GBPm
----------------------------------------------- ----- -----
Interest on bank loan 6.2 5.8
Debt issue cost amortisation 0.3 0.4
Unwind of discount on lease liabilities 0.3 -
Other finance costs 0.5 0.7
Unamortised debt issue costs written off - 0.6
Unwind of discount on contingent consideration 0.2 0.1
----------------------------------------------- ----- -----
7.5 7.6
----------------------------------------------- ----- -----
7. Income tax
(a) Tax charged in the income statement
2019 2018
GBPm GBPm
--------------------------------------------------- ----- -----
Continuing operations
Current income tax:
UK income tax 11.6 11.6
Overseas income tax 0.1 0.1
--------------------------------------------------- ----- -----
Current income tax charge 11.7 11.7
Adjustment in respect of prior years (0.2) (0.5)
--------------------------------------------------- ----- -----
Total current income tax 11.5 11.2
--------------------------------------------------- ----- -----
Deferred income tax:
Origination and reversal of temporary differences (1.3) (1.7)
Adjustment in respect of prior years 0.3 (0.1)
--------------------------------------------------- ----- -----
Total deferred income tax (1.0) (1.8)
--------------------------------------------------- ----- -----
Total tax expense reported in the income statement 10.5 9.4
--------------------------------------------------- ----- -----
Details of the non-underlying tax credit of GBP1.4m (2018:
GBP1.1m) are set out in Note 5.
(b) Reconciliation of the total tax charge
A reconciliation between the tax expense and the product of
accounting profit multiplied by the UK standard rate of income tax
for the years ended 31 December 2019 and 2018 is as follows:
2019 2018
GBPm GBPm
--------------------------------------------------- ----- -----
Accounting profit before tax - continuing
operations 60.1 58.2
--------------------------------------------------- ----- -----
Accounting profit multiplied by the UK standard
rate of income tax of 19.0% (2018: 19.0%) 11.4 11.1
Expenses not deductible for income tax 0.6 0.8
Non-taxable income (0.3) 0.1
Adjustment in respect of prior years 0.1 (0.6)
Effects of patent box (0.8) (0.9)
Effects of changes in income tax rates (0.4) (0.1)
Effects of tax losses - (0.6)
Effects of other tax rates/credits (0.1) (0.4)
--------------------------------------------------- ----- -----
Total tax expense reported in the income statement
- continuing operations 10.5 9.4
--------------------------------------------------- ----- -----
The effective rate for the full year was 17.5% (2018: 16.2%). If
the impact of non-underlying items is excluded, the underlying
income tax rate would be 16.8% (2018: 15.6%).
(c) Deferred income tax
The deferred income tax included in the Group balance sheet is
as follows:
31 December 31 December
2019 2018
GBPm GBPm
--------------------------------------------- ----------- -----------
Continuing operations
Deferred income tax liabilities/(assets)
Short-term timing differences 9.2 9.9
Capital allowances in excess of depreciation 3.3 2.4
Share-based payments (1.4) (0.7)
Tax losses (0.6) (0.6)
--------------------------------------------- ----------- -----------
Continuing operations 10.5 11.0
--------------------------------------------- ----------- -----------
The Group offsets tax assets and liabilities if, and only if, it
has a legally enforceable right to set-off current income tax
assets and current income tax liabilities and the deferred income
tax assets and deferred income tax liabilities relate to income
taxes levied by the same tax authority.
A reconciliation of deferred income taxes for the years ended 31
December 2019 and 2018 is as follows:
2019 2018
GBPm GBPm
---------------------------------------------------- ----- -----
Deferred income tax reported in the income
statement (1.0) (1.8)
Deferred income tax reported in other comprehensive
income 0.1 0.2
Share-based payments excess tax benefit (0.6) (0.1)
Deferred income tax disposed - 0.3
Deferred income tax acquired 1.0 5.7
(0.5) 4.3
---------------------------------------------------- ----- -----
(d) Change in corporation tax rate
The Chancellor has announced that the main UK corporation tax
rate will be reduced from the current rate of 19%, which was
applied from 1 April 2017, to 17% from 1 April 2020. The reduction
in the corporation tax rate to 17% was included in the UK Finance
Act 2016 that was enacted in September 2016.
Deferred income tax is measured at income tax rates that are
expected to apply in the periods in which the temporary timing
differences are expected to reverse based on income tax rates and
laws that have been enacted or substantively enacted at the balance
sheet date. Deferred income tax has therefore been provided at 17%
(2018: 17%).
(e) Unrecognised tax losses
A deferred income tax asset of GBP0.6m (2018: GBP0.6m) is held
in respect of surplus non-trading losses of GBP3.2m (2018:
GBP3.7m).
8. Earnings per share
Basic earnings per share amounts are calculated by dividing
profit for the year attributable to the owners of the parent
company by the weighted average number of ordinary shares
outstanding during the year. The diluted earnings per share amounts
are calculated by dividing profit for the year attributable to the
owners of the parent company by the weighted average number of
ordinary shares outstanding during the year plus the weighted
average number of potential ordinary shares that would be issued on
the conversion of all the dilutive share options into ordinary
shares.
The calculation of basic and diluted earnings per share is based
on the following:
2019 2018
----------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
for the purpose of basic earnings per share 199,330,121 198,989,726
Effect of dilutive potential ordinary shares 2,263,540 2,112,645
----------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
for the purpose of diluted earnings per share 201,593,661 201,102,371
----------------------------------------------- ----------- -----------
Underlying earnings per share is based on the result for the
year after tax excluding the impact of non-underlying items of
GBP9.3m (2018: GBP7.5m). The Directors consider that this measure
provides a better and more consistent indication of the Group's
underlying financial performance and a more meaningful comparison
with prior and future periods to assess trends in our financial
performance. The underlying earnings per share is calculated as
follows:
2019 2018
---------------------------------------------- ---- ----
Underlying profit for the year attributable
to the owners of the parent company (GBPm) 58.9 56.6
---------------------------------------------- ---- ----
Underlying basic earnings per share (pence) 29.6 28.4
---------------------------------------------- ---- ----
Underlying diluted earnings per share (pence) 29.2 28.1
---------------------------------------------- ---- ----
9. Dividend per share
2019 2018
GBPm GBPm
------------------------------------------------ ----- -----
Amounts recognised as distributions to equity
holders in the year:
Final dividend for the year ended 31 December
2018 of 7.9p per share (2017: 7.5p) 15.7 14.9
Interim dividend for the year ended 31 December
2019 of 4.0p per share (2018: 3.7p) 8.0 7.4
------------------------------------------------ ----- -----
23.7 22.3
------------------------------------------------ ----- -----
Proposed final dividend for the year ended
31 December 2019 of 8.1p per share (2018:
7.9p) 16.1 15.7
------------------------------------------------ ----- -----
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting and has not been
included as a liability in these consolidated financial
statements.
10. Property, plant and equipment
Freehold Plant
land and and other
buildings equipment Total
GBPm GBPm GBPm
----------------------------------- ---------- ---------- ------
Cost
At 1 January 2018 37.8 157.2 195.0
Additions 0.4 23.5 23.9
Disposals - (4.6) (4.6)
Acquisition of businesses 8.4 2.8 11.2
Exchange adjustment - 0.1 0.1
----------------------------------- ---------- ---------- ------
At 31 December 2018 46.6 179.0 225.6
Additions 2.4 19.3 21.7
Disposals - (11.8) (11.8)
Acquisition of businesses 3.1 2.8 5.9
Exchange adjustment - (0.3) (0.3)
----------------------------------- ---------- ---------- ------
At 31 December 2019 52.1 189.0 241.1
----------------------------------- ---------- ---------- ------
Depreciation and impairment losses
At 1 January 2018 5.4 91.0 96.4
Provided during the year 1.1 14.2 15.3
Disposals - (4.5) (4.5)
At 31 December 2018 6.5 100.7 107.2
Provided during the year 1.2 15.4 16.6
Disposals - (8.3) (8.3)
Exchange adjustment - (0.2) (0.2)
----------------------------------- ---------- ---------- ------
At 31 December 2019 7.7 107.6 115.3
----------------------------------- ---------- ---------- ------
Net book value
At 31 December 2019 44.4 81.4 125.8
----------------------------------- ---------- ---------- ------
At 31 December 2018 40.1 78.3 118.4
----------------------------------- ---------- ---------- ------
Included in freehold land and buildings is non-depreciable land
of GBP16.2m (2018: GBP14.7m).
11. Intangible assets
Brand Customer
Goodwill Patents names relationships Licences Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------- ------- ------ -------------- -------- -----
Cost
At 1 January 2018 319.7 18.2 25.5 6.4 - 369.8
Acquisition of
businesses 23.3 14.5 3.6 9.1 0.8 51.3
------------------- -------- ------- ------ -------------- -------- -----
At 31 December
2018 343.0 32.7 29.1 15.5 0.8 421.1
Acquisition of
businesses 2.6 1.7 1.2 1.9 - 7.4
------------------- -------- ------- ------ -------------- -------- -----
At 31 December
2019 345.6 34.4 30.3 17.4 0.8 428.5
------------------- -------- ------- ------ -------------- -------- -----
Amortisation and
impairment losses
At 1 January 2018 - 4.3 6.1 2.9 - 13.3
Charge for the
year - 2.0 2.6 1.3 - 5.9
------------------- -------- ------- ------ -------------- -------- -----
At 31 December
2018 - 6.3 8.7 4.2 - 19.2
Charge for the
year - 2.8 2.8 1.8 0.1 7.5
------------------- -------- ------- ------ -------------- -------- -----
At 31 December
2019 - 9.1 11.5 6.0 0.1 26.7
------------------- -------- ------- ------ -------------- -------- -----
Net book value
At 31 December
2019 345.6 25.3 18.8 11.4 0.7 401.8
------------------- -------- ------- ------ -------------- -------- -----
At 31 December
2018 343.0 26.4 20.4 11.3 0.8 401.9
------------------- -------- ------- ------ -------------- -------- -----
Goodwill is not amortised but is subject to annual impairment
testing.
Impairment testing of goodwill
Goodwill acquired through business combinations has been
allocated for impairment testing purposes to a number of
cash-generating units (CGUs). These represent the lowest level in
the Group at which goodwill is monitored for internal management
purposes.
Carrying amount of goodwill allocated to each of the CGUs:
31 December 31 December
2019 2018
CGU GBPm GBPm
------------------ ----------- -----------
Building Products 146.1 146.1
Building Services 31.4 31.4
Civils 36.0 36.0
Nuaire 91.3 91.3
Manthorpe 21.3 21.3
Others 19.5 16.9
------------------ ----------- -----------
345.6 343.0
------------------ ----------- -----------
Impairment tests on the carrying amounts of goodwill are
performed by analysing the carrying amount allocated to each CGU
against its value in use. Value in use is calculated for each CGU
as the net present value of that CGU's discounted future pre-tax
cash flows. These pre-tax cash flows are based on budgeted cash
flows information for a period of one year, construction industry
forecasts of growth for the following year and growth of between 1%
to 2% thereafter (2018: 2% to 3%).
A pre-tax discount rate of 10.0% (2018: 10.0%) has been applied
in determining the recoverable amounts of CGUs. The pre-tax
discount rate is estimated based on the Group's risk adjusted cost
of capital.
The Group has applied sensitivities to assess whether any
reasonably possible changes in assumptions could cause an
impairment that would be material to these consolidated financial
statements. The application of these sensitivities, which included
a scenario for the potential impact of the Coronavirus, did not
cause an impairment of goodwill.
12. Acquisitions
Alderburgh
On 1 October 2019, the Group acquired the Alderburgh Group of
companies (Alderburgh), a leading designer, manufacturer and
installer of plastic injection-moulded stormwater attenuation
tanks, structural waterproofing and geocellular membranes, gas
barrier and ventilation materials, supplying the UK, Irish and
Scandinavian markets.The initial consideration of GBP9.7m included
a payment of GBP0.5m for net cash on completion and is net of loans
and borrowings at acquisition of GBP3.0m. Additional debt and debt
like items amounted to GBP1.8m.
Details of the acquisition are as follows:
Book Fair value Fair
value adjustments value
GBPm GBPm GBPm
--------------------------------- ------ ------------ ------
Intangible assets - 4.8 4.8
Property, plant and equipment 6.0 (0.1) 5.9
Inventories 1.0 - 1.0
Trade and other receivables 3.2 - 3.2
Cash and cash equivalents 0.5 - 0.5
Trade and other payables (3.3) - (3.3)
Loans and borrowings (3.0) - (3.0)
Income tax payable (0.1) - (0.1)
Deferred income tax liabilities (0.4) (0.6) (1.0)
--------------------------------- ------ ------------ ------
Net identifiable assets 3.9 4.1 8.0
Goodwill on acquisition 2.6
Estimated deferred consideration (0.9)
--------------------------------- ------ ------------ ------
Initial cash consideration 9.7
--------------------------------- ------ ------------ ------
Patents, the 'Alderburgh' brand and customer relationships have
been recognised as specific intangible assets as a result of this
acquisition. Fair value adjustments principally relate to the
recognition of intangible assets, the application of fair values to
property, plant and equipment and the deferred income tax
liabilities arising on these adjustments. The goodwill arising on
the acquisition primarily represents the assembled workforce,
technical expertise and market share. The goodwill is allocated
entirely to the Commercial and Infrastructure Systems segment.
Post-acquisition Alderburgh has contributed GBP2.7m revenue and
GBPnil underlying operating profit which is included in the Group
income statement. If Alderburgh had been acquired on 1 January 2019
the Group's results for the year ended 31 December 2019 would have
shown revenue from continuing operations of GBP462.9m and
underlying operating profit of GBP78.8m.
The analysis of cash flows from the acquisition is as
follows:
GBPm
---------------------------------------------------------- -----
Cash consideration (included in cash flows from investing
activities) 9.7
Cash acquired (included in cash flows from investing
activities) (0.5)
Loans and borrowings acquired and settled (included
in cash flows from investing activities) 3.0
---------------------------------------------------------- -----
12.2
Acquisition costs (included in cash flows from operating
activities) 0.6
Net cash flows on acquisition 12.8
---------------------------------------------------------- -----
Acquisition costs of GBP0.6m were expensed and are included in
non-underlying items in administration expenses. Of the GBP0.6m
acquisition costs, GBP0.5m were fully cash settled in the year and
GBP0.1m was included in trade and other payables.
Deferred consideration at fair value of GBP0.9m has been
recognised at the balance sheet date. This relates to the
completion payment which is payable upon agreement of the
completion accounts and has been included in the purchase
consideration.
Permavoid
On 31 August 2018, the Group acquired 100% of the share capital
of Permavoid Limited (Permavoid), a specialist designer and
supplier of surface water management solutions in commercial,
residential, and sports pitch applications, for an initial cash
consideration of GBP4.3m on a cash and debt free, normalised
working capital basis, and further contingent consideration of up
to GBP12.5m depending on the EBITDA performance of Permavoid in the
two years to 30 September 2020.
Contingent consideration at fair value of GBP2.5m has been
recognised at 31 December 2019 (2018: GBP1.7m). Of this, GBP1.4m
(2018: GBP1.4m) is contingent on EBITDA performance in the first
year of trading following acquisition and has been included in the
purchase consideration. The balance of GBP1.1m (2018: GBP0.3m) has
been included in non-underlying items (GBP0.8m in 2019 and GBP0.3m
in 2018) and relates to a second payment that is contingent on
EBITDA performance in the second year of trading following
acquisition and the continued employment of key personnel. This
second payment is being accrued over the two-year period. Of the
GBP0.8m (2018: GBP0.3m), GBP0.6m (2018: GBP0.2m) is included in
administration expenses and GBP0.2m (2018: GBP0.1m) is included in
finance costs.
Contingent consideration was determined using the Directors'
assessment of the likelihood that financial targets will be
achieved. The fair value of the consideration has been derived by
discounting the estimated cash consideration at 10.0% (being the
Group's estimated risk adjusted cost of capital). The estimated
cash consideration is derived from the budgets and forecasts for
Permavoid.
13. Discontinued operations
On 31 January 2018, the Group announced that it had entered into
exclusive negotiations to sell Polypipe France Holding SAS, its
French operations, to Ryb S.A., a France-based manufacturer and
distributor of plastics in Europe. After successful completion of
the required employee consultation process, the sale was completed
on 29 March 2018.
The table below provides further detail of the discontinued
operations:
2018
GBPm
------------------------------------ ------
Revenue 16.7
Expenses (16.4)
------------------------------------- ------
Profit before tax 0.3
Income tax -
------------------------------------ ------
Profit from discontinued operations 0.3
------------------------------------- ------
14. Financial liabilities
31 December 31 December
2019 2018
GBPm GBPm
---------------------------------------------- ----------- -----------
Non-current loans and borrowings:
Bank loan - principal 199.0 212.0
- unamortised debt issue costs (1.3) (1.6)
---------------------------------------------- ----------- -----------
Total non-current loans and borrowings 197.7 210.4
---------------------------------------------- ----------- -----------
31 December 31 December
2019 2018
GBPm GBPm
-------------------------------------- ----------- -----------
Other financial liabilities:
Trade and other payables 97.5 99.6
Forward foreign currency derivatives - 0.1
Interest rate swaps 0.5 1.0
Lease liabilities 14.8 -
Other liabilities 1.0 0.7
Deferred and contingent consideration 3.4 1.7
-------------------------------------- ----------- -----------
117.2 103.1
-------------------------------------- ----------- -----------
Bank loan
On 19 November 2018, the Group entered into an Amendment and
Restatement Agreement with various lenders in respect of the
Group's previous revolving credit facility agreement dated 4 August
2015. The bank loan, which comprises a GBP300.0m revolving credit
facility and GBP50.0m uncommitted accordion facility, is secured
and matures in November 2023 (with two further uncommitted annual
renewals through to November 2025 possible). Interest is payable on
the bank loan at LIBOR plus an interest margin ranging from 0.90%
to 2.75% which is dependent on the Group's leverage (net debt as a
multiple of EBITDA) and reduces as the Group's leverage reduces.
The interest margin at 31 December 2019 was 1.65% (2018:
1.65%).
The Group incurred GBP1.7m of debt issue costs in respect of
entering into the Amendment and Restatement Agreement dated 19
November 2018 which have been capitalised and are being amortised
to the income statement over the term of the facility to November
2023. Unamortised debt issue costs of GBP0.6m in respect of
entering into the Amendment and Restatement Agreement dated 4
August 2015 were written off to the income statement in 2018.
At 31 December 2019, the Group had available, subject to
covenant headroom and excluding the GBP50.0m uncommitted accordion
facility, GBP101.0m (2018: GBP88.0m) of undrawn committed borrowing
facilities in respect of which all conditions precedent had been
met at 31 December 2019.
The Group is subject to a number of covenants in relation to its
bank loan which, if breached, would result in the bank loan
becoming immediately repayable. These covenants specify certain
maximum limits in terms of net debt as a multiple of EBITDA and
interest cover. At 31 December 2019, the Group was not in breach of
any bank covenants. The covenant position was as follows:
Position
at
Covenant 31 December
Covenant requirement 2019
---------------------------------------------------- ------------- ------------
Interest cover (Underlying operating profit:Finance
costs excluding debt issue cost amortisation) >4.0:1 11.3:1
Leverage (Net debt excluding leases liabilities:pro
forma EBITDA) <3.0:1 1.5:1
---------------------------------------------------- ------------- ------------
The interest cover and leverage covenants remain at 4.0:1 and
3.0:1, respectively, throughout the remaining term of the revolving
credit facility to November 2023, though there exists the option to
apply to extend the leverage covenant to 3.5:1 for a limited period
of time if the Group makes an acquisition.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAEDKFSSEEAA
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